government industrial policies

CENTRAL AND STATE GOVERNMENT INDUSTRIAL

POLICIES AND REGULATIONS - INTERNATIONAL BUSINESS

Telangana State government policy

• The Telangana government has announced a new industrial policy, claiming it to be the world's first to ensure the right to timely clearances through legislation and holding officials responsible for delays.

• The policy prescribes a single common application form for all clearances to be accorded by a nodal agency within 15 days for mega projects akin to the Singapore Economic Development Board.

• Telangana is rich in mineral resources and the industrial policy has to tap the sector to create job opportunities for youth in districts.

• Most Telangana districts are rich in mineral resources like quartz, barytes, manganese, laterite, dolomite etc.

• Government is trying to develop refineries and manufacturing industries by utilizing these resources which lead to overall economic development of Telangana and create a huge employment in the state.

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Industrial policy of India

Industrial policy resolution of 1980

Industrial Policy resolutions

NEW EONOMIC POLICY 1991

•Important distinction was made-

Industries to be kept under : -public sector, -private sector and the -joint sector.

•Industrial Department and Regulation Act (IDR Act) was enacted in 1951.

Industrial policy resolution of 1948

Objective of IDR 1951

Empowering the Government to take necessary steps to regulate the pattern of industrial development through licensing.

• This paved the way for the Industrial Policy Resolution of 1956, which was the first comprehensive statement on the strategy for industrial development in India.

•Shaped by the Mahalanobis Model of growth, which suggested that emphasis on heavy industries would lead the economy towards a long term higher growth path.

The Industrial Policy Resolution - 1956 classified industries into three categories :

Industrial Policy Resolution - 1956

17 industries :exclusively under the domain of the Government. Theseincluded inter alia, railways, air transport, arms and ammunition, iron and steel and atomic energy.

12 industries which were envisaged to be progressively Stateowned but private sector was expected to supplement the efforts of the State.

The third category contained all the remaining industries and it was expectedthat private sector would initiate development of these industries but theywould remain open for the State as well.

Objectives

• To accelerate economic growth and boost the process of industrialization as a means to

achieving a socialistic pattern of society.• Removal of regional disparities through

development of regions with low industrial base.

Improving living standards and working conditions for the mass of the people.

To reduce disparities in income and wealth.

To prevent private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals

The State will progressively assume a predominant and direct responsibility for setting up new industrial undertakings and for

developing transport facilities.

At the same time private sector will have the opportunity to develop and expand.

The adoption of the socialist pattern of society as the national objective.

It provided for a closer interaction between the agricultural and industrial sectors. Accorded the highest priority to the

generation and transmission of power.

An exhaustive analysis of industrial products was made to identify products which are capable of being produced in the

small scale sector.

The list of industries exclusively reserved for the small scale sector was expanded from 180 items to more than 500 items.

Within the small scale sector, a tiny sector was also defined with investment in machinery and equipment upto Rs.1 lakh and

situated in towns with a population of less than 50,000 according to1971 census figures, and in villages.

Special legislation to protect cottage and household industries was also proposed to be introduced.

INDUSTRIAL POLICY RESOLUTION, 1973

The Government would promote the development of a system of linkages between nucleus large plants and the satellite ancillaries

To boost the development of small scale industries, the investment limit in the case of tiny units was enhanced to Rs.2 lakh, of a small scale units to Rs.20 lakh and of

ancillaries to Rs.25lakh.

A scheme for building buffer stocks of essential raw materials for the Small Scale Industries was introduced for operation through the Small Industries Development

Corporations in the States and the National Small Industries Corporation in the Centre.

Industrial processes and technologies aimed at optimum utilisation of energy or the exploitation of alternative sources of energy would be given

special assistance, including finance on concessional terms.

INDUSTRIAL POLICY RESOLUTION, 1977

Correction of regional imbalances;

Maximum production and achieving higher productivity; Higher employment generation;

Strengthening of the agricultural base through agro based industries;

Promotion of export-oriented industries;

Promotion of economic federalism through equitable spread of investment and dispersal of returns;

Consumer protection against high prices and bad quality.

INDUSTRIAL POLICY RESOLUTION 1980

New INDUSTRIAL POLICY 1991

The spread of industrialization to backward areas of the country will be actively promotedthrough appropriate incentives, institutions andinfrastructure investments.

Foreign investment and technology collaboration will be welcomed to obtain highertechnology, to increase exports and to expand the production base.

Abolish monopoly

Workers’ participation in management will be promoted

INDUSTRIAL POLICY 1991 ISSUES

Government recognizes the need for• social and economic justice, to end poverty and

unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India

• India to grow as part of the world economy and not in isolation

Enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological up gradation

Emphasis on building our ability to pay for imports through our own foreign exchange earnings

INDUSTRIAL POLICY 1991 OBJECTIVES

In pursuit of the above objectives, Government have decided to take a series of initiatives in respect of the policies relating to the following areas:

A. Industrial Licensing.

B. Foreign Investment.

C. Foreign Technology Agreements.

D. Public Sector Policy.

E. MRTP Act.

A.Industrial Licensing:

Industrial licensing abolished for all projects except a short list of 18 industries related to security and strategic concerns, social reasons, hazardous chemicals etc. (Annex II)

Areas where security & strategic concerns predominate, reserved for public sector. (Annex I)

In projects where imported capital goods are required, automatic clearance given.

In locations other than cities of more than 1 million population, no requirement of obtaining industrial approvals from Central Government.

Incentives & investments in infrastructural development, to promote dispersal to rural and backward areas.

Existing units enabled to produce any article without additional investment.

INDUSTRIAL POLICY 1991

B. Foreign Investment: Approval upto 51 percent foreign equity in

high priority industries.(Annex-III) Imports governed by general policy

applicable to other domestic units, payment of dividents monitored by RBI to ensure that outflows on account of dividents are balanced by export earnings.

Other foreign equity proposals, not covered above, need prior clearance.

A special Empowered Board- to negotiate with a number of large international firms & get FDIs approved.

INDUSTRIAL POLICY 1991

C. Foreign Technology Agreements: Automatic permissions for foreign

technology agreements in high priority industries (Annex-III) upto a lumpsum payment of Rs. 1 crore.

For industries other than those in Annex III, automatic permissions if no foreign exchange is required for payment

All other proposals need specific approval

No permission for foreign technicians, foreign testing of indigenously developed technologies.

INDUSTRIAL POLICY 1991

D. Public Sector Policy: Portfolio of public sector investments

reviewed with a view to focus public sector on strategic, high tech & essential infrastructure.

Chronically sick public enterprises, referred to Board of Industrial & Financial Reconstruction (BIFR).

A part of government’s shareholding in public sector offered to mutual funds, financial institutions, public & workers.

Boards of public sector companies- more professional & powerful.

MOU system- managements would be granted greater autonomy & held accountable.

INDUSTRIAL POLICY 1991

E. MRTP Act: (Monopolistic Restrictive Trade Practices):

Removal of threshold limits of assets in respect of MRTP Companies & dominant undertakings.

Elimination of need of prior approval of Central Government for establishment, expanding, merger, amalgamation & takeover.

Emphasis on controlling & regulating monopolistic, restrictive & unfair trade practices.

Enabling the MRTP Commission to exercise punitive & compensatory powers.

POST 1991- THE REFORM

PHASE

EIGHTH FIVE YEAR PLAN (1992-97)

Expectation- 7.5 per cent

Annually achieved growth rate for industries:1992-93 : 4.2 percent1993-94 : 6.8 percent1994-95 : 9.4 percent1995-96 : 12.3 percent1996-97 : 7.7 percent

Average Annual Growth Rate- 8.1 percent

NINTH FIVE YEAR PLAN (1997-2002)

Industrial growth target: 3% p.a.

Achieved: 4.5% p.a.

In 1997-98 and 1998-99, industries reported a growth of 3.8 percent.Such slow down was due to a number of structural and cyclical factors.

TENTH FIVE YEAR PLAN (2002-07)

Two major reforms that took place from the year 2002 were:

1)1. RISE IN INTERNATIONAL COMPETITION : Removal of quantitative restrictions on imports.

2)DECLINE IN ROLE OF PUBLIC SECTOR : Disinvestment process converted many of the existing public sector enterprises into non- governmental enterprises.

INDUSTRIAL GROWTH RATES ANNUALLY :

2002-03 : 6.8 percent

2003-04 : 7.9 percent

2004-05 : 8.9 percent

2005-06 : 8.2 percent

2006-07 : 10.6 percent

ELEVENTH FIVE YEAR PLAN (2007-12)

Fluctuating trends

2007-08: 15.5 percent

Started declining owing to global economic meltdown

2008-09 : 2.5 percent

2009-10 : 5.3 percent

2010-11 : 8.2 percent

2011-12 : 3.8 percent

TWELVTH FIVE YEAR PLAN (2012-17)

CHALLENGES FACING :

A.Dumping in Indian markets

B.Indian Industry needs to be cost effective along with delivering value.

C.Ensuring that investments made in infrastructure projects fructify quickly.

D.Growth of labour intensive industries.

• Khadi, which symbolized self-reliance and emancipation during the freedom struggle in India, has lost its sheen over the years.

• In 1957, the Khadi and Village Industries Commission (KVIC) was established to take over the work of the board. KVIC was formed as a nodal agency to promote Khadi all over India through its exclusive outlets known as Khadi Bhandars. There were many bogus Khadi units operating in the country, which made it extremely difficult to claim rebates from the Government of India for the sale of Khadi.

• You are the Home Minister of INDIA. Prepare a clause in the existing Industrial Policy of India to deal with the above stated problem.

ACTIVITY : POLICY DILEMMA

INTRODUCTION MSME

Msme stands for micro, small and medium enterprises.

It plays a important role for economic development of our country.

The major advantage of the sector is its employment potential at low capital cost. The labor intensity of the MSME sector is much higher than that of the large enterprises.

it satisfies the demand of local customer.

MSME- INDIAN SCENARIO

• 12.5 million MSMEs• Employ 30 million People• Contribute approx. 50% of Industrial Production

• Contribute approx. 45% of Exports

Industry coming under msme

Food Processing(kfc product,berger,pasta) Agricultural Inputs(Seeds, fertilizer) Chemicals & Pharmaceuticals(medicines) Engineering; Electricals, Electronics Electro-medical equipment Textiles and Garments Meat products Sports goods Plastics products Computer Software, etc.

Brief idea about MSME

• In India, the enterprises have been classified broadly into two categories

1.Manufacturing

2. services.• Both categories have been further classified into

micro, small and medium enterprises based on their investment in plant and machinery or on equipment.

CATEGORIZATION OF ACTIVITIES UNDER Manufacturing or Services under

the MSMED Act 2006-

Manufacturing service

1. Printing 1.publishing

2.Medical Equipment 2.hospitals

3.Ayurvedic Product 3. Restaurant

3.Beedi/ Cigarette Manufacturing 4.hotels

and other tobacco products. 5.education

4. Generation of electricity 6.training

though windmill. 7.software service

Classification Investment ceiling for plant, Machinery or Equipments

Manufacturing Enterprises

Service Enterprises

Micro Upto Rs. 25 lakh Upto R. 10 lakh

Small Above Rs. 25 lakh & upto Rs. 5 crore

Above Rs. 10 lakh & upto Rs. 2 crore

Medium Above Rs. 5 Crore an upto Rs. 10 crore

Above Rs. 2 crore & upto Rs. 5 crore

AIM OF MSME

MSME development as a tool of state policy aims at :• Generation of Employment• Dispersal of Economy• Utilization of local skills and resources• Meet demands locally

FISCAL BENEFITS

• following fiscal benefits covering the categories of

(a) Micro/Small Enterprises (b) Medium Enterprises & Large Industries (c) Scheduled Caste & Scheduled Tribe Entrepreneurs (d) Women Entrepreneurs

FISCAL BENEFITS 1 Stamp duty Land cost rebate Lease shed rebate

Micro and Small Enterprises (MSE’s)

100% 25% 25%

SC ST 100% 33% 100%

Power cost Investment subsidy for fixed capital

Vat/cst

Micro Enterprises .75/unit 15% 100%

Small .75/unit 15% 50%

SC ST 1.00/unit 35%

Women sc st 40%

Women sc st triball areas 45%

FISCAL BENEFITS 2

Pavala Vaddi Interest subsidy upto 12%

Quality certification Vat/cst

Micro Enterprises Excess of 3% 50% 100%

Small Excess of 3% 50% 50%

ORDER

(1) This Order is titled as ‘Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012’.

(2) It shall come into force with effect from 1stApril 2012.

Public Procurement Policy for Micro and Small Enterprises (MSEs) OrderWhereas, the Central Government Ministries, Departments and Public Sector Undertakings shall procure minimum of 20 per cent of their annual value of goods or services from Micro and Small Enterprises; s

Special provisions for Micro and Small Enterprises owned by Scheduled Castes or Scheduled Tribes. ─ Out of 20 per cent target of annual procurement from Micro and Small Enterprises, a sub-target of 20 per Cent (i.e., 4 per cent out of 20 per cent) shall be earmarked for procurement from Micro and Small Enterprises owned by the Scheduled Caste or the Scheduled Tribe entrepreneurs.

SCHEMES AVAILABLE

• Tool Rooms & Technical Institutions• Micro & Small Enterprises-Cluster Development

Program(MSE-CDP)• Micro Finance Programme• Micro, Small & Medium Enterprises(MSME) Credit

Monitoring Cell • Credit Linked Capital Subsidy Scheme under Technology

Upgradation (CLCSS)ISO9001/ISO 14001 Certification Reimbursement Scheme• National Manufacturing Competitiveness Programme (NMCP)

International Business Environment

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International Business

• The buying and selling of the goods and services across the border.

• The national border are crossed by the enterprises to expand their business activities like manufacturing, mining, construction, agriculture, banking, insurance, health, education, transportation, communication and so on.

Trade• Trade means exchange of goods and services

for the satisfaction of human wants.

• When trade is confined to the geographical limits of a country, it is a domestic or national trade.

• International or foreign trade refers to the trade between two countries.

• Technically, domestic trade and International trade are more or less identical and are based on the same basic principles of trades.

Differences between Domestic and International Business

• Difference in Currencies• Difference in Natural and Geographical Conditions• Mobility of Factors of Production• Sovereign Political Entities

– Imposition of tariffs and customs duties on imports and exports;

– Quantitative restrictions like quotas;– Exchange control;– Imposition of more local taxes etc.

• Different Legal Systems

Importance of IBE• Helps in expansion: Geographic expansion may be used

as a business strategy. Even though companies may expand their business at home.

• Helps in managing product life cycle: Every product has to pass through different stages of product life cycle-when the product reaches the last stages of life cycle in present market, it may get proper response at other markets.

• Technology advantages: Some companies have outstanding technology advantages through which they enjoy core competency. This technology helps the company in capturing other markets.

Cont…

Importance of IBE• New business opportunities: Business opportunities in

overseas markets help in expansion of many companies. They might have reached a saturation point in domestic market.

• Proper use of resources: Sometimes industrial resources like labor, minerals etc. are available in a country but are not productively utilized.

• Availability of quality products: When markets are open, better quality goods will be available every where. Foreign companies will market latest products at reasonable prices. Good product will be available in the markets.

Cont…

Importance of IBE• Earning foreign exchange: International business

helps in earning foreign exchange which may be used for strategic imports. India needs foreign exchange to import crude oil, deface equipment, raw material and machinery.

• Helps in mutual growth: Countries depend upon each other for meeting their requirements. India depends on gulf countries for its crude oil supplies.

• Investment in infrastructure: International business necessitates proper development of infrastructure.

Problems in International Business

• Controlling the market: Multinational try to control the market of the host country. Whenever they enter a new country, the first strategy is to eliminate the competitors either by taking over their business or forcing them out of market by following price reduction policies.

• Exhausting natural resources: Multinational corporations set up their production facilities in those countries where natural resources are available in sufficient quantities.

• Importance to luxuries: Multinational corporations enter those areas where margin of profits is high.

Cont…

Problems in International Business• Trade practices: Since multinational corporations have

their head office in one country and the trade practices followed there are adhered to.

• Economic development: It is generally felt that the entry of businessmen from outside may help in the economic development of that country . The actual practice in many countries is different.

• Shifting of investment: International business is related to profitability of its operations. If a business is getting sufficient profits in a particular country then the investment remain there.

Need for International Business– causes the flow of ideas, services, and capital across the

world

– offers consumers new choices

– permits the acquisition of a wider variety of products

– facilitates the mobility of labor, capital, and technology

– provides challenging employment opportunities

– reallocates resources, makes preferential choices, and shifts activities to a global level

Trends in IB• Trade between partners of Regional Trade

Agreements (RTAs) • Developing countries’ trade• South-South trade• Air Cargo; Express cargo• Global production network• Intra-firm trade• E-commerce

Developing countries’ trade• It is observed that developing countries are

increasingly becoming an important destination for the exports of developed countries.

• Some problems have been recognized in identifying tariff classification and assessing the Customs value of second-hand goods such as used cars, computer equipment, machinery and clothing.

South-South trade• Merchandise trade between developing

countries, i.e. South-South trade.• Intra-regional trade, in particular

through RTAs, played a central role in the rise of South-South trade.

Air Cargo; Express cargo

• It is reported that world air cargo accounts at present for a small portion of world merchandise trade by weight, but a significant portion by value.

• This important growth in express traffic can be attributed to several factors– globalization and associated Just-In-Time production

and distribution systems– increased trade in high-value low-weight products and– the provision of a service that assists SMEs to compete

effectively in an increasingly global market

Global Production Network• The share of manufactured goods within world

merchandise trade has grown significantly throughout the world.

• The share of parts and components exports of total merchandise exports has greatly increased in all six regions of the world, for example from 6% in 1980 to 15% in 2002 in the East Asia region.

• Exported goods contain a significant portion of imported intermediate inputs. In the “international segmentation of production”, intermediate inputs are exported for more processed intermediate inputs, which are then exported to the next stage in production.

Intra-firm trade

• Intra-firm trade, i.e. trade within the same company around one-third of world merchandise trade, although aggregate data are only available for a few countries.

• Intra-firm trade between high and middle-income countries was directly related to the internationalization of production.

• The affiliates in the middle-income countries were mostly instructed to manufacture goods destined for other markets, including the country of the parent company.

E-commerce• It has dominant factor in international trade and

business, although traditional methods of trade and business continue to be utilized widely.

• It can reduce business costs in seeking potential foreign business partners, as well as improve a firm’s visibility in global marketing services, in particular for SMEs.

• It enables firms to take more opportunities to expand their business in global markets.

International Trade Theories

• Theory of Mercantilism

• Theory of Absolute Cost Advantage

• Theory of Comparative Cost Advantage

• Heckscher-Ohlin Model Leonief Paradox

Theory of Mercantilism• This theory is during the sixteenth to the

three-fourths of the eighteenth centuries. • It beliefs in nationalism and the welfare of

the nation alone, planning and regulation of economic activities for achieving the national goals, curbing imports and promoting exports.

• It believed that the power of a nation lied in its wealth, which grew by acquiring gold from abroad.

Theory of Mercantilism• Mercantilists failed to realize that simultaneous

export promotion and import regulation are not possible in all countries, and the mere possession of gold does not enhance the welfare of a people.

• Keeping the resources in the form of gold reduces the production of goods and services and, thereby, lowers welfare.

• It was rejected by Adam Smith and Ricardo by stressing the importance of individuals, and pointing out that their welfare was the welfare of the nation.

Theory of Absolute Cost Advantage

• This theory was propounded by Adam Smith (1776), arguing that the countries gain from trading, if they specialise according to their production advantages.

• The pre-trade exchange ratio in Country I would be 2A=1B and in Country II IA=2B.

Theory of Absolute Cost Advantage

• If it is nearer to Country I domestic exchange ratio then trade would be more beneficial to Country II and vice versa.

• Assuming the international exchange ratio is established IA=IB.

• The terms of trade between the trading partners would depend upon their economic strength and the bargaining power.

Theory of Comparative Cost Advantage

• Ricardo (1817), though adhering to the absolute cost advantage doctrine of Adam Smith, pointed out that cost advantage to both the trade partners was not a necessary condition for trade to occur.

• According to Ricardo, so long as the other country is not equally less productive in all lines of production, measurable in terms of opportunity cost of each commodity in the two countries, it will still be mutually gainful for them if they enter into trade.

Theory of Comparative Cost Advantage

• In the example given, the opportunity cost of one unit of A in country I is 0.89 unit of good B and in country II it is 1.2 unit of good B. On the other hand, the opportunity cost of one unit of good B in country I is 1.125 units of good A and 0.83 unit of good A, in country II.

Theory of Comparative Cost Advantage• The opportunity cost of the two goods are different in

both the countries and as long as this is the case, they will have comparative advantage in the production of either,

good A or good B, and will gain from trade regardless of the fact that one of the trade partners may be possessing absolute cost advantage in both lines of production.

• Thus, country I has comparative advantage in good A as the opportunity cost of its production is lower in this country as compared to its opportunity cost in country II which has comparative advantage in the production of good B on the same reasoning.

Types of International Business

Export-import tradeForeign direct

investment

Licensing

FranchisingManagement

contracts